NOTE 16. INCOME TAXES



	Years ended December 31,
	2018			2017			2016
Components of Income (Loss) Before Taxes	($ in millions)
Domestic	$	288.0		$	53.3		$	(23.3	)
Foreign	149.3			63.9			(10.9		)
Income (loss) before taxes	$	437.3		$	117.2		$	(34.2	)
Components of Income Tax Provision (Benefit)
Current expense (benefit):
Federal	$	21.7		$	(4.0	)	$	(11.6	)
State	5.1			3.0			0.9
Foreign	48.0			24.1			15.7
	74.8			23.1			5.0
Deferred expense (benefit):
Federal	27.0			(549.6		)	(10.1		)
State	(0.8		)	14.6			(5.1		)
Foreign	8.4			79.6			(20.1		)
	34.6			(455.4		)	(35.3		)
Income tax provision (benefit)	$	109.4		$	(432.3	)	$	(30.3	)

The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax rate to the income (loss) before taxes.



	Years ended December 31,
Effective Tax Rate Reconciliation (Percent)	2018		2017		2016
Statutory federal tax rate	21.0	%	35.0	%	35.0	%
State income taxes, net	2.0		(1.2	)	8.0
Foreign rate differential	1.8		(7.7	)	(25.1	)
U.S. tax on foreign earnings	1.1		(70.8	)	24.4
Salt depletion	(2.4	)	(16.1	)	45.4
Change in valuation allowance	3.8		76.0		(0.7	)
Remeasurement of U.S. state deferred taxes	(0.6	)	10.2		9.4
Change in tax contingencies	(0.7	)	(7.7	)	(9.7	)
U.S. Tax Cuts and Jobs Act	(0.8	)	(373.5	)	—
Share-based payments	—		(5.7	)	—
Dividends paid to Contributing Employee Ownership Plan	(0.1	)	(0.6	)	2.8
Return to provision	(0.1	)	(0.6	)	5.3
U.S. Federal tax credits	(0.4	)	(4.2	)	0.6
Other, net	0.4		(2.0	)	(6.8	)
Effective tax rate	25.0	%	(368.9	)%	88.6	%

The effective tax rate for 2018 included benefits associated with the 2017 Tax Act, stock-based compensation, changes in tax contingencies, a foreign dividend payment, changes associated with prior year tax positions and the remeasurement of deferred taxes due to a decrease in our state effective tax rates. The effective tax rate also included expenses associated with a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions and the remeasurement of deferred taxes due to changes in our foreign tax rates. These factors resulted in a net $2.9 million tax benefit, of which $3.8 million related to the increase of the 2017 Tax Act benefit. After giving consideration to these items, the effective tax rate for 2018 of 25.7% was higher than the 21% U.S. federal statutory rate primarily due to state and foreign income taxes, foreign income inclusions and a net increase in the valuation allowance related to current year losses in foreign jurisdictions, partially offset by favorable permanent salt depletion deductions.

The effective tax rate for 2017 included benefits associated with the 2017 Tax Act, an agreement with the Internal Revenue Service (IRS) on prior period tax examinations, stock based compensation, U.S. federal tax credits, changes to prior year tax positions and a reduction to the deferred tax liability on unremitted foreign earnings. The effective tax rate also included an expense associated with a net increase in the valuation allowance, primarily related to foreign net operating losses and remeasurement of deferred taxes due to an increase in our state effective tax rates. These factors resulted in a net $452.3 million tax benefit, of which $437.9 million was a provisional benefit from the 2017 Tax Act. After giving consideration to these items, the effective tax rate for 2017 of 17.1% was lower than the 35% U.S. federal statutory rate, primarily due to favorable permanent salt depletion deductions.

The effective tax rate for 2016 included benefits associated with return to provision adjustments, primarily related to salt depletion and non-deductible acquisition costs, and the remeasurement of deferred taxes due to a decrease in our state effective tax rates. The effective tax rate also included an expense associated with a change in prior year uncertain tax positions. These factors resulted in a net $3.9 million tax benefit. After giving consideration to these items, the effective tax rate for 2016 of 77.2% was higher than the 35% U.S. federal statutory rate, primarily due to favorable permanent salt depletion deductions in combination with a pretax loss.

The 2017 Tax Act was enacted on December 22, 2017 and included a broad range of provisions impacting the taxation of businesses. Included within the provisions, the 2017 Tax Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on unremitted earnings of foreign subsidiaries that were previously tax deferred and transitioned the U.S. from a worldwide tax system to a modified territorial tax system.

The SEC Staff issued SAB 118, which provided guidance on accounting for the tax effects of the 2017 Tax Act. SAB 118 provided a measurement period of up to one year from the 2017 Tax Act’s enactment date for companies to complete the accounting under ASC 740 “Income Taxes” (ASC 740). In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the 2017 Tax Act was incomplete but it was able to determine a reasonable estimate, it should have recorded a provisional estimate in the financial statements. If a company could not determine a provisional estimate to be included in the financial statements, it should have continued to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 Tax Act.

At December 31, 2018, we have completed our accounting for the tax effects of the 2017 Tax Act and accounted for updates to estimates of significant items including: (1) the effects on our existing deferred tax balances, (2) the remeasurement of deferred taxes on foreign unremitted earnings and (3) the one-time transition tax.

In connection with our initial analysis of the 2017 Tax Act, we recognized a provisional deferred tax benefit of $437.9 million at December 31, 2017. This benefit included: (1) a provisional $315.8 million deferred tax benefit to reflect the reduction of the U.S. corporate tax rate from 35% to 21% and (2) a provisional $122.1 million deferred tax benefit to reflect an estimated reduction of $162.6 million in our deferred tax liability on unremitted foreign earnings partially offset by an estimate of the one-time transition tax of $40.5 million. We utilized existing U.S. federal net operating loss carryforwards and foreign tax credits to fully offset the cash tax impact of the one-time transition tax liability.

For the year ended December 31, 2018, we decreased the deferred tax benefit by $0.1 million as a result of additional guidance issued by the IRS.

For the year ended December 31, 2018, we increased the deferred tax benefit by $3.9 million as a result of filing the 2017 U.S. and foreign tax returns.

A provision of the 2017 Tax Act established a minimum tax on certain foreign earnings (i.e. global intangible low-taxed income or GILTI). We have completed our analysis of the GILTI tax rules and have made the accounting policy election to treat the taxes due from GILTI as a period expense when incurred.



	December 31,
Components of Deferred Tax Assets and Liabilities	2018			2017
Deferred tax assets:	($ in millions)
Pension and postretirement benefits	$	156.8		$	147.3
Environmental reserves	31.9			33.2
Asset retirement obligations	15.5			14.0
Accrued liabilities	37.0			37.6
Tax credits	19.5			37.1
Net operating losses	50.2			53.3
Capital loss carryforward	2.0			2.1
Other miscellaneous items	23.9			11.2
Total deferred tax assets	336.8			335.8
Valuation allowance	(147.4		)	(121.4		)
Net deferred tax assets	189.4			214.4
Deferred tax liabilities:
Property, plant and equipment	541.8			550.3
Intangible amortization	61.6			67.3
Inventory and prepaids	8.3			1.0
Partnerships	65.2			67.5
Taxes on unremitted earnings	5.1			3.1
Total deferred tax liabilities	682.0			689.2
Net deferred tax liability	$	(492.6	)	$	(474.8	)

Realization of the net deferred tax assets, irrespective of indefinite-lived deferred tax liabilities, is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, we believe that it is more likely than not that the net deferred tax assets will be realized.

At December 31, 2018, we had a U.S. net operating loss carryforward (NOL) of approximately $0.5 million (representing $0.1 million of deferred tax assets) that will expire after 2019, if not utilized.

At December 31, 2018, we had deferred state tax benefits of $12.2 million relating to state NOLs, which are available to offset future state taxable income through 2037.

At December 31, 2018, we had deferred state tax benefits of $18.1 million relating to state tax credits, which are available to offset future state tax liabilities through 2033.

At December 31, 2018, we had a capital loss carryforward of $8.3 million (representing $2.0 million of deferred tax assets) which is available to offset future consolidated capital gains that will expire in years 2019 through 2022, if not utilized.

At December 31, 2018, we had foreign tax credits of $5.0 million, which are available to offset certain federal tax liabilities through 2028.

At December 31, 2018, we had NOLs of approximately $225.8 million (representing $38.0 million of deferred tax assets) in various foreign jurisdictions. Of these, $44.8 million (representing $11.0 million of deferred tax assets) expire in various years from 2020 to 2028. The remaining $181.0 million (representing $27.0 million of deferred tax assets) do not expire.

As of December 31, 2018, we had recorded a valuation allowance of $147.4 million, compared to $121.4 million as of December 31, 2017. The increase of $26.0 million is primarily due to the recent history of cumulative losses within foreign jurisdictions and projections of future taxable income insufficient to overcome the loss history. We continue to have net deferred tax assets in several jurisdictions which we expect to realize, assuming sufficient taxable income can be generated to utilize these deferred tax benefits, which is based on certain estimates and assumptions. If these estimates and related assumptions change in the future, we may be required to reduce the value of the deferred tax assets resulting in additional tax expense.

The activity of our deferred income tax valuation allowance was as follows:



	December 31,
	2018			2017
	($ in millions)
Beginning balance	$	121.4		$	29.0
Increases to valuation allowances	31.9			94.5
U.S. Tax Cuts and Jobs Act	—			2.2
Decreases to valuation allowances	(0.9		)	(5.0		)
Currency translation adjustment	(5.0		)	0.7
Ending balance	$	147.4		$	121.4

As of December 31, 2018, we had $33.8 million of gross unrecognized tax benefits, which would have a net $33.0 million impact on the effective tax rate, if recognized. As of December 31, 2017, we had $36.3 million of gross unrecognized tax benefits, which would have a net $35.5 million impact on the effective tax rate, if recognized. The change for 2018 primarily relates to additional gross unrecognized benefits for current and prior year tax positions, as well as decreases for prior year tax positions. The change for 2017 primarily relates to additional gross unrecognized benefits for current and prior year tax positions, as well as decreases for prior year tax positions. The amounts of unrecognized tax benefits were as follows:



	December 31,
	2018			2017
	($ in millions)
Beginning balance	$	36.3		$	38.4
Increase for current year tax positions	2.1			2.9
Increase for prior year tax positions	0.3			5.4
Reductions due to statute of limitations	—			(0.1		)
Decrease for prior year tax positions	(4.9		)	(9.2		)
Decrease due to tax settlements	—			(1.1		)
Ending balance	$	33.8		$	36.3

In May 2017, we reached an agreement in principle with the IRS regarding their examination of our U.S. income tax returns for 2008 and 2010 to 2012. The settlement resulted in a reduction of income tax expense of $9.5 million related primarily to favorable adjustments in uncertain tax positions for prior tax years.

We recognize interest and penalty expense related to unrecognized tax positions as a component of the income tax provision. As of December 31, 2018 and 2017, interest and penalties accrued were $1.6 million and $1.2 million, respectively. For 2018, 2017 and 2016, we recorded expense (benefit) related to interest and penalties of $0.4 million, $(1.8) million and $(0.4) million, respectively.

As of December 31, 2018, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately $7.2 million over the next twelve months. The anticipated reduction primarily relates to settlements with tax authorities and the expiration of federal, state and foreign statutes of limitation.

We operate globally and file income tax returns in numerous jurisdictions. Our tax returns are subject to examination by various federal, state and local tax authorities. None of our U.S. federal income tax returns are currently under examination by the IRS. In connection with the October 5, 2015 acquisition of DowDuPont’s U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities relating to taxes to the extent arising prior to October 5, 2015. We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position. For our primary tax jurisdictions, the tax years that remain subject to examination are as follows:



	Tax Years
U.S. federal income tax	2013 - 2017
U.S. state income tax	2006 - 2017
Canadian federal income tax	2012 - 2017
Brazil	2014 - 2017
Germany	2015 - 2017
China	2014 - 2017
The Netherlands	2014 - 2017